PART 2
THE ENVIRONMENT OF INTERNATIONAL BUSINESS
CHAPTER 4
ETHICS, CORPORATE SOCIAL RESPONSIBILITY, SUSTAINABILITY AND
GOVERNANCE IN INTERNATIONAL BUSINESS
Instructor’s Manual by Marta Szabo White, Ph.D.
I. LECTURE STARTER/LAUNCHER
The concepts of ethics and legal frameworks are central to this chapter. Considering
that students may not have experienced substantial exposure to these concepts prior to
taking this course, the fundamentals of what is ethical and what is legal are pivotal here,
and moreover, is the fact that these standards vary globally. To ensure that students
grasp the basic definitions and explanations, try a fun and challenging exercise: Ask
students to think of examples of actions that would be legal, but not ethical and then
something that would be ethical, but not legal. Next, try this same exercise for different
countries. The Internet is a great tool for this.
II. LEARNING OBJECTIVES AND THE OPENING VIGNETTE
LEARNING OBJECTIVES
After studying this chapter, students should be able to:
4.1 Appreciate ethical behavior and its importance in international business
4.2 Recognize ethical challenges in international business
4.3 Understand corporate social responsibility
4.4 Understand sustainability
4.5 Know the role of corporate governance
4.6 Learn about a framework for making ethical decisions
Key Themes
■ In this chapter, there are six themes:
[1] Ethical Behavior and its Importance in International Business
[2] Ethical Challenges in International Business
[3] Corporate Social Responsibility
[4] Sustainability
[5] Corporate Governance
[6] A Framework for Making Ethical Decisions
■ Ethics are the moral principles/values that govern the behavior of people, firms, or
governments. When considering international business, we must also address the
fact that ethical standards vary around the world.
■ Ethical Relativism argues that ethical truths are not absolute but differ from group to
group.
■ Ethical Normativism holds that ethical standards are universal, and firms and
individuals should seek to consistently uphold them anywhere in the world.
■ Ethical dilemma is a dissonance among different interests. Determining the best
course of action is confounded by several possible solutions that may be equally
justifiable, e.g. intellectual property protection.
■ Unethical behavior often takes the form of piracy, bribery, and corruption.
■ Corruption is the practice of obtaining power, personal gain, or influence through
illegitimate means.
■ Intellectual property refers to ideas or works created by individuals/firms.
■ Governments aim to protect intellectual property, however weak legal systems
exacerbate this task.
■ Global Corporate Social Responsibility (CSR) means meeting or exceeding the
ethical, legal, and commercial expectations of stakeholders, i.e. being a socially
responsible corporate citizen in the host country. Making a profit is the main
commercial expectation of shareholders. If the firm does not make a profit, it will cease
to exist. Thus, attending to ethical and legal expectations on their own are insufficient…
the firm must also meet the commercial expectations of shareholders in order to
address the greater ethical and legal expectations of stakeholders.
■ CSR implies a proactive ethical approach where firms seek not to maximize profits,
but to optimize them by also benefitting society and the environment. The economic
rationale for CSR stems from competitive advantages leveraged through human capital
(motivation of the workforce) and resulting superior performance. Failure to develop a
CSR strategy may negatively impact the firm.
■ Sustainability refers to meeting humanity’s needs without harming future
generations. Three types of interests are considered: economic, social, and
environmental.
■ Sustainable firms choose and work with suppliers that adhere to high social and
environmental standards.
■ Corporate governance is the system of procedures and processes by which
corporations are managed, directed, and controlled.
■ Scholars have devised five standards managers can use to examine ethical
dilemmas, based on utilitarianism, rights, fairness, common good, and virtue. Senior
managers should develop a Code of Ethics that describes what the firm expects of its
employees when facing ethical dilemmas.
■ Framework for making ethical decisions consists of five steps:
1. Identify the problem
2. Examine the facts
3. Create alternatives
Evaluate each proposed action to assess its consistency with accepted
ethical standards, using the following approaches:
■ Utilitarian—which action results in the most good and least harm?
■ Rights—which action respects the rights of everyone involved?
■ Fairness—which action treats people most fairly?
■ Common good—which action contributes most to the overall quality
of life of the people affected?
■ Virtue—which action embodies the character strengths you value?
4. Implement course of action
5. Evaluate results
■ Ethical behavior must be supported internally by organizational leadership through
the dissemination of a Code of Conduct and commensurate reinforcements; and may
be supported externally by organizations such as the United Nations and the World
Bank.
Teaching Tips
■ By way of introduction to this pivotal chapter on ethics, which in fact relates to every
chapter in this text, and to every other course students have ever and will ever take in
their lives. Ethics permeates all that we do. So make it fun. Make it personal. Ask
students whether they have ever borrowed a pen or pencil and forgot to return it. Next,
ask them whether they would turn in a classmate who was cheating on an exam. Almost
everyone will have experienced a similar situation. The ensuing discussion will most
likely be lively, one that you can leverage to launch the central issues addressed in this
chapter.
■ A great introduction to ethics in international business is to discuss the Corruption
Perceptions Index, provided by Transparency International (www.transparency.org), an
organization that tracks illicit behavior, like bribery and embezzlement, in the public
sector for 180 countries by surveying international business executives (low score = low
corruption level).
■ As interactive discussions typically elevate classroom discussions and ensuing
learning, break the class into groups of four or five per group, ask each group to select
an African country and a non-African country. Next, research the corruption index for
both countries, using a myriad of Internet links; of course http://globaledge.msu.edu is a
good one. This should take about 10 minutes. When students share their findings, there
are two interesting learning points here:
[1] Source credibility- provides an opportunity to discuss general search engines such
as Google and Wikipedia vs. more scholarly sources such as Transparency
International (www.transparency.org), World Bank, CIA World Factbook, etc.
[2] What are the important variables in measuring corruption and which countries rank
where? How does this impact international business and economic development?
1977 U.S. Foreign Corrupt Practices Act (FCPA)
■ Discuss the 1977 U.S. Foreign Corrupt Practices Act (FCPA), which addresses two
main provisions: [1] Accounting transparency requirements under the Securities
Exchange Act of 1934 and [2] Bribery of foreign officials. This act was amended in 1998
by the International Anti-Bribery Act of 1998 which was designed to implement the
anti-bribery conventions of the Organization for Economic Cooperation and
Development (OECD).
◘ Explore the second provision, which makes it illegal for U.S. firms to offer
bribes to foreign parties in order to secure or retain business. Under the FCPA, firms
can be fined $2 million and managers can be imprisoned for up to five years. Why do
certain U.S. businesses argue that the FCPA is a competitive disadvantage for
international, U.S.-based firms?
◘ The FCPA distinguishes between bribery vs. facilitation or grease payments,
which may be permissible. Grease payments are made to an official to expedite the
performance of duties that he is already bound to perform. Payments to officials with
decision-making authority are considered bribery. There are several interesting cases
that students may research and share with the rest of the class, e.g. Lockheed
Corporation, Lucent Technologies, Triton Energy Limited, Invision Technologies, and
former Representative William J. Jefferson, was charged with violating this act by
bribing African governments for business interests.
■ Are there any situations where bribery is legal under the FCPA?
◘ Payments may be legal under the FCPA if the payments are permitted under
the written laws of the host country. Certain payments or reimbursements relating to
product promotion may also be permitted under the FCPA.
◘ Bribes or payments made under duress to avoid injury or violence are
acceptable.
◘ In an unstable political environment, payments made to local officials to avoid
employee harassment are acceptable.
◘ Of course, small payments to encourage officials to execute their legitimate
and routine jobs are also acceptable.
■ If you have class time [109 minutes] you might share the 2005 Enron: The Smartest
Guys in the Room documentary based on the best-selling 2003 book of the same
name. Written by Fortune reporters Bethany McLean and Peter Elkind, this film
examines one of the largest business scandals in American history, the 2001 collapse of
the Enron Corporation, which resulted in criminal trials for several of the company’s top
executives, and inspired the 2002 Sarbanes–Oxley Act. The film features interviews
with McLean and Elkind, former Enron executives and employees, stock analysts,
reporters and the former Governor of California Gray Davis.
The recipient of the Independent Spirit Award for Best Documentary Feature and
nominated for Best Documentary Feature at the 78th Academy Awards in 2006, a
captivating video of the true Enron story, however, caution is advised as you may want
to skip over the brief nudity- so preview it ahead of class time.
Commentary on the Opening Vignette:
CORPORATE SOCIAL RESPONSIBILITY AT COCA-COLA
Key message
■ This vignette illustrates the global implications of corporate citizenship on the part of
Coca-Cola (Coke). This global firm had been criticized for endangering water supplies,
marketing soft drinks to teenagers, and inferior workplace conditions (bottlers) in some
developing economies.
■ Coke has initiated a proactive approach to enhancing its image as a socially
responsible corporate player.
■ Coca-Cola has 125,000 employees and more than 900 bottling and manufacturing
facilities worldwide, generating 80% of its more than $46 billion in sales from
international markets.
■ Coke has a significant impact on human and natural environments.
Uniqueness of the situation described
■ Sustainability Efforts:
◘ Water Neutral Strategies
● Invested millions to develop superior wastewater treatment facilities.
● In arid areas, programs were implemented to replace all of the extracted
water from local aquifers
● Implements worldwide water-conservation programs
◘ Health Focus Strategies
● Alternatives- Offers no-calorie or low-calorie beverages
◘ Energy Reduction Strategies
● Continuous efforts to reduce energy consumption across bottling and
manufacturing facilities
◘ Pollution Reduction Strategies
● Uruguay- Coke uses hybrid electric trucks to deliver product in
congested areas to reduce pollution
● North America- Coke operates hundreds of hybrid delivery trucks,
which are 30% more fuel efficient than diesel counterparts.
● Europe-Hybrid program is being expanded
● Switched to 100% renewable energy in numerous operating facilities
● Belgium- uses 100% geothermal energy
●Technology improvements– vending machines to reduce harmful
greenhouse gases
◘ Product Packaging Life-Cycle Management
● Used bottles are converted into plastic chips, which are then made into
new bottles
● Bottles made from 30% plant-based materials are more biodegradable
● One facility recycles 100 million pounds of plastic bottles annually,
equivalent to nearly 2 billion Coca-Cola bottles a year.
● 2020– Management aims to recycle 100% of Coke’s bottles/cans
◘ Coke’s Live Positively pledge is a code of conduct for the firm’s
sustainability goals.
● Coke is committed to responsible marketing practices, and avoids
advertising aimed at children
● Coke’s Workplace Rights Policy confirms management’s commitment to
banning child labor and discrimination; offering fair wages and work hours; and ensuring
occupational health and safety.
● Coke’s Anti-Bribery Policy provides guidance on how to conduct
business in an ethical and legal manner.
Classroom discussion
■ The ramifications of CSR permeate global business and world sustainability.
◘ Manual Distribution Centers (MDCs) account for over 80% of company sales in
East Africa while providing small-business ownership and jobs to more than 12,000
people- meeting customer needs while supporting African sustainability
◘ Micro-distribution centers in Africa employ entrepreneurs who distribute product
to local retailers in hard-to-reach areas.
◘ Coke is seeking to apply similar models in India, China, and Latin America.